Cost of Living Reality Check: Scenario



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Purchasing an Automobile



Step One: Your Income and Expenses
Student Name___________________________________________ Date_______________________________

Cost of Living Reality Check:

Scenario: If your parents have been covering or subsidizing your living expenses at home or college, you probably need a reality check before stepping out on your own. For many young adults, the combination of lower-than-expected take-home pay together with higher-than-expected living expenses can be a recipe for financial disaster.

Your Income:

Let’s start with your paycheck. You will be earning starting salary of $35,000 per year, divided in 12 months of $2,917 per month.




Monthly Gross Pay

$2,917 ($35,000 Divided by 12 Months)

Federal Taxes

$331

Social Security

$181

Medicare

$42

State Taxes

$100

Employment Benefits

$150

NET INCOME

$2,113 Per Month ($25,356 Per Year)

Your Expenses:


Now that you know how much you can expect to bring home, you can divvy up your paycheck. Here's a general guide to help you budget your money to make sure your expenses are covered. The dollar figures in parentheses are based on our above example of a $35,000 gross salary with a monthly take-home pay of $2,113 per month after taxes and other deductions.

30% Housing
10% Utilities and other housing expenditures (including renters insurance)
15% Food (at-home and away)
10% Transportation (including fuel)
10% Debt repayment (student loans and credit cards)
10% Saving
5% Clothing
5% Entertainment
5% Car insurance and Maintenance

Your Mission: Find the perfect automobile for yourself. This workbook will guide you through the planned buying process to evaluate your options, determine how you will pay for the vehicle and other costs associated with owning a car.

Step Two-Monthly Payment



Describe how the automobile will be used:

How Much Can You Afford?

Directions: Use the Practical Money Skills for Life website to calculate how much can you can afford.

www.practicalmoneyskills.com/calculators > All Calculators > How Much Car Can You Afford?


Down Payment, Trade-In Value and Rebates:

Length of Loan

What Monthly Payment Do You Think You Can Afford*

(Net Income x 10%

_____________)






Interest Rate

Sales Tax**



What is the total amount you can afford?

**Go here to learn the sales tax in your state: http://www.sale-tax.com/Utah

*When purchasing an automobile there are many expenses to consider when calculating the total cost of

that automobile. In addition to the total cost of an automobile, a person should also consider the condition and required maintenance of an automobile.




Step Three-Conduct Research

Features Needed For Your Car

Directions: Place a check mark next to important features for how the vehicle will be used:

 Price  Transmission  Interior Style

 Year (Automatic/Manual)  Environment Impact

 Gas Mileage  Body Style  Color

 Fuel Type (SUV, Truck, Car)  _________________

 Number of Doors  Navigation System  _________________

 Total Number of Miles  Trunk/Cargo Space  _________________

(If Used)

 Country of Assembly  Towing Capacity  _________________

 Number of Seats  Warranty  _________________

 Type of Engine  Safety Ratings

Directions:

1. Visit the Kelley Blue Book website: http://www.kbb.com/cars-for-sale.

2. Update your location if needed.

3. Answer the questions to indicate your desired features.

4. Click “View” to learn what models have your desired features.

5. Click “Quick view” next to the picture of each model and then “View full detail” to learn more about that model

including additional features. (Model Details from KBB – Specs)

6. Identify and further research three automobiles in which you are interested. Record the make, model, year and price

in the table on the next page.
Prioritize Features

Directions:

1. Column one: Identify the eight most important automobile features. List them in column one in order of importance.

When applicable, be specific and identify what is important about that feature. For example, if high gas mileage is

important, rather than listing gas mileage, indicate 30+ miles per gallon.

2. Column two: Indicate why that feature is important.

3. Column three—five: Evaluate each vehicle and place a check mark  along with any applicable notes in each column

if the vehicle has that desired feature.

4. Last row: For each option, total the number of check marks.



Desired Features

Listed in order of importance.



Why

Automobile 1:

Make:


Model

Year:


Price:

Automobile 2:

Make:


Model

Year:


Price:

Automobile 3:

Make:


Model

Year:


Price:

























































































































Totals:











Which vehicle would you select and why?

Were you able to get all the features you wanted? If not, what trade-offs did you make?


Step Four-Spending Plan Evaluation


Financing Options

1. Identify three financing options for your desired automobile. Consider a variety of lending sources including the banks, credit unions and online websites such as www.bankrate.com/funnel/auto.




Finance Option 1:

Finance Option 2:

Finance Option 3:

Lending Source










Interest Rate










Additional Terms/Fees










Length of Loan










2. Practical Money Skills for Life website to calculate the monthly payment for each finance option.

www.practicalmoneyskills.com/calculators



Monthly Payment










3. Identify an advantage and disadvantage for each finance option.

Advantages










Disadvantages











Which financing option would you use and why?

If you had a poor credit score, what are two ways this could influence your access to credit and/or credit terms?



In addition to the monthly payment, what are three additional automobile expenses to include in your spending plan?

What would happen if you pay more than the minimum monthly payment each month?



Step Five-Make the Purchase


What are two ways you could minimize or reduce your out-of-pocket transportation costs?

Would you purchase an extended warranty for this vehicle? Why or why not?

If you have an automobile loan, what are two actions you will take to maintain a positive credit rating?

Why is it important, and required, to have insurance for your automobile?

What are two steps you can take to feel confidence with the potential lenders, dealerships and/or sales personnel you interact with?

What are two ways you will protect yourself from fraud when purchasing an automobile?

Throughout the research and purchase process, what are two strategies you can use to critically evaluate information?

What items do you spend money on that aren’t included in the major expenditure categories?


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